The combination of a deepening US recession and the effects of the credit crisis are expected to produce a further decline in 2009 US automotive industry sales volumes from already-depressed 2008 levels, data out this week suggests.
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Fitch Rating projects that US industry sales volumes will decline approximately 10.7% in 2009 to 11.6m light vehicles, from an estimated 13m units in 2008. The first half of 2009 is expected to absorb the brunt of this decline, with a sharp decline of 25%-30% from 2008 levels, with the second half producing flat to modestly higher sales levels in comparison with second-half 2008 recessionary levels.
Fitch’s economic forecast of a 1.2% decline in US GDP in 2009, and an increase in the unemployment rate to 7.8%, is the backdrop for the automotive demand projection, the ratings agency said.
Fitch said: “Furthermore, the rationing of credit by the financing arms of the Detroit Three to the highest-quality borrowers, as well as tightened lending standards by alternative financing providers, will play a role in reducing industry sales to a level even below actual demand.”
Domestic fleet sales are also expected to decline further in 2009 as a result of reduced volumes from daily rental and corporate operators, as well as pressures on state and municipal budgets. The peak-to-trough industry sales decline of approximately 35% is expected to exceed the downturn of the early 1980s.
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By GlobalDataHowever, Fitch said, in the second half of 2009, steps taken by the federal government to support financial institutions and to improve market liquidity could improve retail financing availability to those consumer segments where demand exists.
“High unemployment and weak economic conditions, however, will mute any material recovery in industry volumes until well into 2010. International operations of Ford and GM are also coming under increased pressure as a result of the global downturn, reducing the potential for cash repatriation and increasing the likelihood of operating losses in certain regions,” Fitch added.
Fitch said it believes that a bankruptcy at GM would result in widespread production shutdowns across the supplier base, threatening output at all US auto assembly plants, including those of transplant [foreign-owned] manufacturers.
As of September 2008, Fitch estimates that GM and Ford had in excess of $21bn in domestic, short-term trade payables, and the inability to make timely payments on any portion of these obligations would have crippling repercussions throughout the supply chain.
On the other side, the inability or unwillingness of suppliers throughout the chain to supply trade credit would be the primary catalyst for a bankruptcy at one of the Detroit Three, it said.
